According to reports, renewable energy projects — once lucrative enough to attract even alcohol makers and farm traders — are feeling the heat as a key attraction, the market for green certificates issued to developers, has collapsed alarmingly, casting a shadow on India’s ambitious plan for solar, wind and small hydro projects.
Until a year ago, it seemed a seller’s market in state-promoted Renewable Energy Certificates (REC) as power distribution companies in states were asked to buy 5%-10% of their electricity from renewable sources or buy RECs instead. Project developers are granted one certificate for every 1,000 units of electricity generated from renewable sources.
Today, developers have accumulated 21 lakh certificates which nobody wants to buy. Last month, they have been able to sell barely 2% of the certificates, and concerns are mounting as RECs have a shelf life of only two years. The market for the certificates has crashed due to oversupply. “The availability of RECs has increased to more than 20 lakh and this would increase further in the coming months,” Power Exchange India head MG Raoot told ET. Unsold RECs will start lapsing if project developers cannot find buyers by September.
The situation was different in 2009-10. Himachal Pradesh and Rajasthan, which have huge potential for small hydro plants and solar projects, respectively, attracted a wave of cash-rich visitors. It was not the scenic beauty but the potential for renewable projects that electrified their interests. Now, the head of a leading brewery sorely regrets his decision to plunge into the sector, investing Rs 400 crore for a 40 mw hydro project. He thought distribution companies would follow the government’s order on Renewable Purchase Obligation (RPO) which mandates them to buy green power.
“Investors like us thought that government’s regulation on RPO will be honoured by discoms. However, we are unable to even serve our debts. We have no option but to continue with the project. We do not expect anyone to acquire our project as the revenue model in the present scenario is unviable,” said a top executive of the distiller.
Sector expert and former power minister Suresh Prabhu said investments in the sector were at risk. He blamed regulators for not being able to enforce the obligation of utilities to buy renewable power. “Renewable purchase obligation is part of the Electricity Act itself and regulator has to decide its quantum from time to time. Non-compliance of this obligation will jeopardise investments in renewable sector,” Prabhu said.
Renewable energy equipment makers too are facing uncertain future. India added 1,700 mw of wind power capacity in 2012-13 against 3,164 mw in the previous year. Consultants are now telling companies not to depend on certificates for project economics. “We don’t advise our clients to bank on REC anymore since we do not expect investors to earn any margins over the floor price,” said PwC India leader for energy & utilities Kameswara Rao. Financial institutions have already stopped funding projects banking on REC heavily.
The REC mechanism, launched in November 2010, has given developers Rs 743 crore from sale of certificates up to March 31, 2013, but the demand is falling rapidly. In the last trading session, prices of solar certificates slumped to record low of Rs 11,490 from Rs 12,206 in the previous session. For the first time, there were more sellers than buyers. Renewable energy advisor Gensol Consultants’ Anmol Jaggi feels solar REC will touch its floor price of Rs 9,300 in coming sessions. According to an energy exchange executive, it makes more sense for discoms to buy solar power at Rs 6-8 per unit instead of REC solar for Rs 9.30. This anomaly is distorting REC market, the executive said.